International Tax Law

Luxembourg offers several tax benefits and incentives for companies, making it an attractive destination for businesses. Here’s a detailed summary of some of the key tax benefits available for companies in Luxembourg:

Corporate Income Tax (CIT):

Luxembourg has a favorable corporate income tax rate, which is set at a flat rate of 15%. However, certain types of income may benefit from exemptions or reduced rates under double taxation treaties.

Participation Exemption:

Luxembourg’s participation exemption regime allows companies to benefit from an exemption on dividends and capital gains derived from qualifying shareholdings in other companies. To qualify, the parent company must hold at least 10% of the share capital of the subsidiary for an uninterrupted period of at least 12 months.

Intellectual Property (IP) Regime:

Luxembourg provides tax incentives for income derived from intellectual property, including patents, trademarks, domains and copyrights. Under this regime, a portion of the income derived from qualifying IP assets can benefit from an 80% exemption from corporate income tax.

Tax incentives for intellectual property (IP) aim to promote innovation, creativity, and economic growth by providing tax benefits and incentives to companies that develop, acquire, or exploit IP assets.

Our firm specializes in advising clients on tax incentives available for IP in Luxembourg and across Europe, including tax deductions, credits, and exemptions for research and development expenses, patent box regimes, and IP licensing income. We help clients optimize their tax positions and maximize the value of their IP portfolios through strategic tax planning and compliance with applicable tax laws and regulations.

Innovation Income Deduction:

Companies engaged in qualifying research and development (R&D) activities may benefit from an innovation income deduction, allowing them to deduct 50% of qualifying net income derived from certain IP rights or software copyrights.

Notional Interest Deduction (NID):

The notional interest deduction allows companies to deduct a deemed interest expense on their equity. This deduction effectively reduces the taxable base of the company, providing a tax advantage.

Double Taxation Treaties:

Luxembourg has an extensive network of double taxation treaties with countries around the world, which can help to mitigate the tax burden on companies engaged in cross-border activities. These treaties often provide reduced withholding tax rates on dividends, interest, and royalties.

Special Tax Regimes:

Luxembourg offers several special tax regimes for specific industries or types of income, such as the securitization regime, the investment fund regime, and the holding company regime. These regimes provide favorable tax treatment for qualifying entities.

VAT Regime:

Luxembourg’s value-added tax (VAT) regime offers certain advantages, including the ability for companies to benefit from the EU’s VAT exemption for intra-community supplies of goods and services.

Tax Credits and Incentives:

Additionally, Luxembourg provides various tax credits and incentives to encourage investment, job creation, and sustainable development. These incentives may include tax credits for hiring employees, investing in renewable energy, or undertaking environmental projects.

Overall, Luxembourg’s tax system is designed to attract and support businesses by providing a favorable tax environment, international tax planning opportunities, and a range of incentives to encourage innovation, investment, and economic growth. However, companies should carefully consider their specific circumstances and seek professional advice to optimize their tax position and ensure compliance with local tax regulations.